PremierInvestor.net Newsletter Monday 09-30-2002 section 1 of 2 Copyright © 2001, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section one: Market Wrap: So Long, September Watch List: DDS, GPI, MCD, GS Play of the Day: More High Volume Declines ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 09-30-2002 High Low Volume Advance/Decline DJIA 7591.93 -109.52 7698.81 7460.78 2.00 bln 1209/1539 NASDAQ 1172.06 - 27.10 1190.74 1160.07 1.66 bln 1456/1799 S&P 100 407.25 - 5.97 413.22 399.46 Totals 2665/3338 S&P 500 815.28 - 12.09 827.37 800.20 RUS 2000 362.27 + 0.49 363.79 354.30 DJ TRANS 2151.07 - 34.10 2185.12 2102.55 VIX 44.57 + 1.43 47.50 43.19 VXN 58.36 + 0.50 61.41 57.68 Total Vol 3,671M Total UpVol 958M Total DnVol 2,638M 52wk Highs 56 52wk Lows 439 TRIN 1.71 PUT/CALL 1.09 ******************************************************************* =========== Market Wrap =========== So Long, September By John Seckinger Good Riddance. For the month of September, the Dow lost an impressive 1,072 points. Looking at the third quarter as a whole, the blue chips finished lower by 1,652 points. Coincidence or not, the 3rd quarter of 2001 represented a loss of 1655 points. On a percentage basis, the Dow lost 17.8% in the 3rd quarter, and, according to the Stock Trader's Almanac, only the 30.7 percent drop during 1931 was worse. For the year, the Dow is down 2,430 points, or 24%. Looking at other markets, the Nasdaq lost roughly 11 percent for September and 20 percent for the quarter, its fourth-worst third-quarter performance ever. The S&P suffered its worst third-quarter results since 1987, dropping about 17 percent for the quarter and 11 percent for the month. Looking at September 30th specifically, this last trading day of the month and quarter certainly started out on a powerful down note. The blue chips opened down over 100 points during the first few minutes of trading, soon after testing the July 24th low of 7532 and buyers’ patience. Speaking of technical levels, the late-day rebound did have the Dow test the July 23rd low of 7682 (7685 high rebound level) before falling into the close. At session’s close, the Dow had fallen by 109 points, or 1.42%, to 7591. The catalysts were numerous. Traders first focused on foreign markets showing sizable losses overnight; France lower by 5.3%, Germany off 4.7%, and the UK down 3.75% before the U.S. markets had a chance to open. Bonds were up significantly, and stock futures all were showing deep shades of red. Other negative developments included GE cutting estimates, WMT lowering sales guidance, an EBAY downgrade, coupled with weak economic reports. Sectors coming under pressure on Monday included Retail, software, semiconductor, and networking issues. Indices that outperformed were gold, biotech, tobacco, and utility shares. Beginning with General Electric (GE), Merrill Lynch cut estimates early on Monday to reflect concerns over a deteriorating economy and GE’s short cycle business plan. The earnings cuts by Merrill followed similar statements from Lehman and CSFB during Friday’s session. Shares of GE closed higher by 0.18 cents at 24.65, rebounding from a low of 23.51 and attempt to test 23.02 low set on July 24th. Under 23.02, and a chartist would have to look back to October 1998 to find support. Wal-Mart, on the other hand, lowered sales guidance and took the entire retail sector down with it. The company reportedly lowered September same-store sales towards the low-end of the rand (3-6%), and also stated that FY 2002 earnings will come in at 1.76-1.78 versus consensus estimates of 1.79. Shares of WMT fell 3.90% to 49.24, while the S&P Retail Index lost 11.51 points, or 4.16%, to close at 264.54. Taking down technology issues was helped by shares of eBay (EBAY), losing 8.15% to 52.81 after being downgraded by RBC Capital Markets to “under perform” from “sector perform” and having its price target cut to $45 from $70. Other technology shares losing ground included shares of Intel (INTC), falling by 5% to 13.89 after the company’s CEO said he doesn’t expect a real turnaround in computer sales until companies return to profitability and start spending money on technology. Rounding out the technology behemoths, MSFT, CSCO, and IBM all went lower on Monday as the Nasdaq and QQQ’s lost 2.25 and 2.76%, respectively. If foreign and domestic equity weakness was not enough, investors had to deal with weaker-than-expected economic releases. Starting with Personal Income and Spending reports, both fell short of the 0.5% expectations economists had hoped for. Personal Income rose 0.4%, while Personal Spending increased a mere 0.3%. The retail sales and august employment report portended strong consumption figures; however, spending on the service level was tame while growth within the auto sector remained volatile. This shortfall should have economists looking for slightly less growth out of the 3Q GDP. The main economic release on Monday came at 10:00 a.m. Bonds were already significantly higher, the Dow was near its intra-day low (hindsight of course), and the release of the Chicago Purchasing Manager’s Index (PMI) evidently lead to some temporary capitulation. Expectations were for a slight decrease to 53 from 54.9, month prior. Therefore, the 6.8-point drop to 48.1 and first sub-50 reading since January was clearly unexpected. Regional volatility in new orders was the likely culprit, falling 6.6 points to 49.2. In May, new orders came in at 65.6. Note: September ISM Index will be released at 10:00 a.m. on Tuesday, with expectations for a slight up tick in growth to 51 from 50.5. Gathering attention before, during, and after the Chicago’s PMI Index was activity in the bond market, especially the two-year note. The cash 2-year note closed at 1.69%, below the Fed Funds rate of 1.75%. This is called a "negative carry," since it will cost institutions 1.75% to borrow money that they need to hold inventory of 2-year notes. Historically, the 2-year note has fallen under the Federal Funds rate only four times in the last 13 years. Following such an occurrence, the Fed usually lowers the funds rate within the next few months. Note: The next meeting is November 6. Another barometer for Fed action is the implied yield on the federal funds futures contract, currently indicating that there is almost a 100-percent chance the Fed will cut rates by 0.25 percentage points before its next policy meeting. The December Fed Funds futures contract is currently at 98.57, or 1.43% (32 basis points under the Federal Funds rate). Keeping with bond futures theme, it was interesting that the December Bond closed only three ticks above its opening level of 114-05. The high in the contract was 114-31 (double-top with last Wednesday), while the recorded low was 114-07. At 3 p.m. eastern time, the 30-year closed at 114-08. This could give some fixed-income participants reason to take profits and enter equities. The yield curve, on the other hand, closed very strong, with the five-year note up 20.5 ticks and 10-year bond higher by 20. This is a 43 tick steepener and significantly bearish for stocks. Looking into the future, portfolio managers on Tuesday will now have to decide which stocks need to be sold and which issues they “really” want to own. The window dressing unwinding. Moreover, concerns over which companies might warn and which will have their earnings cut for quarters extending throughout 2004 will also be in the spotlight. According to Thomson First Call, the third-quarter ratio of negative to positive earnings pre- announcements fell to 2.2 versus 3.5 this time last year when the economy was clearly in a recession. Time for some technical analysis. Beginning with a chart of the Dow, the objective this morning most likely was for a test of the July 24th low of 7532. After that, bears most likely looked for 7401 to be challenged, an area set during September 1998. Reasons for not testing the 7401 level included support from the regression line (coming in near 7460) and the chance that the RSI bullish divergence is a sign of a possible reversal. Other reasons could have been a self-fulfilling double-bottom and/or profit taking out of bonds and back into stocks. Chart of the Dow Jones Industrial Average, Daily Turning to the QQQ’s, the much-discussed Head and Shoulders formation is still on track to meet its 17.64 objective. A move back above the ascending neck line (now currently near 22.25) will most likely nullify the H&S pattern. It is also interesting the that the RSI indicator failed to make a new low as the QQQ’s continued its descent: A Bullish Divergence indicator. Note: Some necklines may be drawn different, resulting in an objective above or below 17.64. Chart of the Nasdaq-100 Index (QQQ), Daily The fixed-income arena shows extreme price action as well (see below). Looking at a chart of the 30-year bond, YIELDS have set a new record low monthly close and could possibly portend one more wave lower before recovery. Not coincidentally, the RSI is diverging as well. This divergence portends higher yields, which should be bullish for stocks. And, like the Dow, there is a good chance YIELDS will find temporary relief once the regression line is tested. Chart of 30-year Treasury Bond Index, Monthly To recap, the ISM report on Tuesday will garner much attention, as will price action within Treasuries and possible negative earnings announcements. Risk continues to be shifted into the bears’ camp, but, as always, this does not mean that the selling will stop. As a trader, watch price action very closely and keep those stops tight. Who knows, maybe the Fed will surprise us before the week is out. ================================================================== WATCH LIST ================================================================== The PremierInvestor.net watch list is not designed to be read as full fledged stock picks. Rather we would prefer to offer it as an extra tool in today's investor toolbox. Think of it as a radar screen with your own radar operator pointing out interesting developments, technical patterns or potential plays that you may or may not have seen on your own. Due to time constraints we do glance at the news but rarely do we have time to fully read pertinent news stories, due background research and other necessary screens that investors should do before making a decision. A common exercise is to read the entry, glance at the sector and other stocks in that industry and then compare what's happening in the stock to what's happening in the broader market indices. We hope you enjoy the Watch List and that it proves to be a useful tool for your own trading success. STOCKS WORTH WATCHING --------------------------------- Dillards Inc - DDS - close: 20.18 change: -1.27 WHAT TO WATCH: The retail sector was taken out behind the woodshed and spanked on Monday. The news from Wal-Mart, the world's largest retailer, that their Q3 numbers would be lower than expected did not sit well with investors. Combine concern s over an exhausted consumer with the situation regarding the dock workers in California and suddenly there might be higher risks than expected in retail stocks. We're not suggesting any sort of play in DDS right now. Shares traded below support of $21 and $20 early this morning but were able to rebound. What we want to watch is for any sort of failed rally at the $21.00 to $21.50 area or a rollover back under the $20 mark. --- Group 1 Automotive - GPI - close: 22.35 change: -1.93 WHAT TO WATCH: Retail stocks got hammered today (as mentioned above) but auto stocks have also been weak. GPI is getting squeezed for being a part of both groups. Stock failed at its 50-dma on Thursday and the last two sessions have left the share price below the July 02 lows. Is GPI due for a bounce? Sure it is but we think the stock is headed for $20.00. More patient traders who would prefer to short it near resistance can look for a failed rally at $24, the stock's new short-term overhead barrier. --- McDonalds Corp - MCD - close: 17.66 change: -0.71 WHAT TO WATCH: Shares of MCD were cut almost in half this quarter and unfortunately for shareholders the descent does not yet appear over. Shares tried to hang on last week and consolidated sideways near the $18 level but Monday's market weakness was to much and the stock gapped lower, tried all day to get back above the $18 mark, and failed. We're not recommending any positions in the play but the situation looks bearish despite the extremely oversold technical indicators. --- Goldman Sachs - GS - close: 66.03 change: -0.10 WHAT TO WATCH: Shares of GS are holding up rather well, relatively speaking. The brokers/banking industry has been hit with abnormally low trading volumes and almost no M&A activity to speak of. GS' stock has been trying to hold support at the $64.50 level and has bounced there three times in the last six sessions. Should this level break a bearish position could be do well despite the oversold indicators. =============== Play-of-the-Day =============== (( BEARISH PLAY )) ChevronTexaco - CVX - close: 69.25 chg: -1.72 stop: 73.61 Company Description: ChevronTexaco is a leader in the global energy business with wide- ranging activities in more than 180 countries. ChevronTexaco is the third-largest energy company in terms of global oil and gas reserves (more than 11 billion barrels of oil and gas equivalent) and fourth largest in global oil and natural gas production (2.7 million barrels of oil and gas equivalent per day). It has the capacity to refine more than 2 million barrels per day, sells more than 5 million barrels of fuel and products daily and owns or has interest in more than 25,000 retail outlets under Chevron, Texaco and Caltex brands. In the United States, the company currently markets gasoline under the Chevron brand at 8,100 retail outlets in 28 states, primarily in the West, Southwest and South and in the District of Columbia and operates six refineries. (source: company press release) - ORIGINAL WRITE UP: September 27th, 2002 - Why We Like It: Here we go again. We were moderately successful with a technicals only play on oil company Ameranda Hess (AHC) and the stars have aligned again for a bearish move but this time we're going to use CVX as our mode of transportation. As per the AHC write up, the price of crude oil is slowly rising and shows no signs of stopping but the share price of oil companies is falling and these too show no signs of stopping. Please review the annotated charts we have listed for the patterns we are playing. More conservative traders could use a move under the $70 mark to go short on CVX. We are choosing to open shorts at current levels. The stock performed a perfect failed rally at descending resistance. Thus we can stick our stop just above Friday's high and limit our risk ($73.61). Short-term traders could target the $67.50 area but we are going to aim for a move to $65.65 or the July low to cover for a profit. - Play-of-the-Day Comments: September 30th, 2002 - The oil group continues to slide and we like the way the OIX fell under back from its 50-dma just as CVX did. The close under $69 looks tempting for new short positions as was the intraday failed rally at $70 Monday afternoon. Picked on September 27th at $70.97 Results since picked: +1.72 Earnings Date 07/30/02 (confirmed) ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright © 2001 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
PremierInvestor.net Newsletter Monday 09-30-2002 section 2 of 2 Copyright © 2001, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section two: NetBulls Tech Stocks Triggered Short Plays: MERQ StockBottom Non-tech Stocks Triggered Short Plays: AL, BLS, JPM High-Risk/Reward Stocks Triggered Short Plays: BGEN Trading Ideas Value Plays With Bullish Signals Breakout to Upside (Stocks $5 to $20) Breakout to Upside (Stocks over $20) Breakout to Downside (Stocks over $20) Recently Overbought With Bearish Signals (Stocks over $20) ================================================================= Net Bulls Tech Stocks (NB) section ================================================================= =============== NB Play Updates =============== *TRIGGERED PLAY* ---------------- Mercury Interactive - MERQ - close: 17.16 chg: -0.91 stop: 19.56 The market weakness did a number on the software sector this Monday and MERQ was no exception. We were triggered early on as shares fell sharply from the open. The afternoon rebound was a potential worry but bears reasserted themselves and established new short- term resistance at the $18 mark. ================================================================= AT Active Trader/Non-tech plays ================================================================= *TRIGGERED PLAY* ------------- Alcan Inc - AL - close: 24.68 chg: -0.22 stop: 25.51 We were triggered on this bearish play when AL opened between $24.50 and $24.00 at $24.17 Monday morning. The stock quickly rebounded but could not crack the $25.00 mark. This is encouraging for the bears but we'd prefer to see a little more confirmation before initiating any new positions. --- BellSouth - BLS - close: 18.36 chg: -1.25 stop: 20.82 The opening trade at $18.80, well below our trigger at 19.32 put us into a hypothetical bearish position for this telecom play. Shares consolidated sideways most of the session and were heading lower into the close. We're going to leave our stop at 20.82 for the moment and reassess our risk after Tuesday's close. --- J.P. Morgan - JPM - close: 18.99 chg: +0.65 stop: 20.01 We are more than a bit surprised that on yet another triple- digit down day for the Industrials, and a day where the Dow traded below the 7500 mark, that shares of JPM actually closed higher. Unfortunately, this was not before the stock traded below the $18 mark and triggered us short at $17.99. We're going to keep our stop at 20.01 for the moment and see how the play progresses. ================================================================== High Risk / High Reward (HR) section ================================================================== *TRIGGERED PLAY* ------------- Biogen Inc - BGEN - close: 29.27 chg: -0.12 stop: 32.01 Shares of BGEN performed similar to our play in JPM. We were triggered early on but soon after the stock rallied. Fortunately for the bears, the rally failed at over head resistance at $30.00. Given yet another failed rally traders looking to initiate new positions might do so but be sure to confirm weakness in the sector index (BTK.X) and/or the broader markets. ================== Trading Ideas ================== This section contains stocks that meet criteria which may make them of interest to long and short side traders. These are not recommendations, nor have they been reviewed by PremierInvestor editors for investment potential. However, each of them has technical and fundamental characteristics that make them worthy of further review by traders and investors looking for fresh ideas. New stocks will appear daily following the market close. Value Plays With Bullish Signals --------------------------------- Ticker Company Name Close Change FDP Fresh Del Monte Produce 25.59 +1.64 MNTR Mentor Corp 31.88 +1.59 SLGN Silgan Holdings Inc 28.44 +1.27 PFSB Pennfed Financial 27.49 +0.73 STTX Steel Technologies 16.96 +0.96 --------------------------------------- Breakout to Upside (Stocks $5 to $20) --------------------------------------- Ticker Company Name Close Change WHES W-H Energy Services 17.30 +1.70 STC Stewart Info Services 21.35 +0.70 --------------------------------------- Breakout to Upside (Stocks over $20) --------------------------------------- Ticker Company Name Close Change STE Steris Corp 24.91 +1.16 TECH Techne Corp 32.79 +1.24 EVG Evergreen Resources Inc 40.98 +1.32 SRDX Surmodics Inc 31.77 +2.24 ------------------------------------------- Breakout to Downside (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change WMT Wal-Mart Stores 49.24 -2.00 IBM Intl Business Machines 58.31 -2.05 FNM Fannie Mae 59.54 -1.97 TGT Target Corp 29.52 -2.39 KSS Kohl's Corp 60.81 -3.28 S Sears Roebuck 39.00 -1.62 CVS CVS Corp 25.35 -2.04 HIG Hartford Fncl Services 41.00 -1.33 PBG Pepsi Bottling Group 23.40 -1.19 FD Federated Dept Stores 29.44 -1.73 HB Hillenbrand Industries 54.30 -3.93 FMX Fomento Economico 33.80 -1.10 ----------------------------------------- Recently Overbought With Bearish Signals (Stocks over $20) ------------------------------------------- Ticker Company Name Close Change PNRA Panera Bread Co 27.00 -0.91 ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of PremierInvestor.net may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. PremierInvestor.net staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. Please read our disclaimer at: http://www.optioninvestor.com/page/oin/aboutus/disclaimer.html ***************************************************************** ADVERTISING INFORMATION For more information on advertising in PremierInvestor.net Newsletter, or any Premier Investor Network newsletter please contact Contact Support. ***************************************************************** Copyright © 2001 PremierInvestor.net. and The Premier Investor Network. Do not duplicate or redistribute in any form.
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